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Wednesday, 2 October 2013

US shutdown: Who cares! Sensex rallies 300 points

Most Asian markets including India seem to have given two hoots to concerns over the partial shutdown in the US, something which most analysts say is likely to slow down the world's largest economy.

The S&P BSE Sensex rallied over 300 points in mid-morning trade on Thursday, led by gains in IT, metals, autos and capital good stocks.

At 10:20 a.m.; Sensex was trading 287 points higher or 1.4 per cent at 19,804.40. It has hit a low of 19,583.97 and a high of 19,823.95.

Earlier in the week, US federal government staggered into a partial shutdown which may put the US in danger of busting through its debt ceiling.

The congressional Republicans stubbornly demanded changes in the nation's health care law as the price for essential federal funding and US President and Democrats adamantly refused which led to the first government shutdown for the first time in 17 years.

Both leaders of the House and Senate acknowledged there would not be a resolution in time to stop a shutdown, as flurry of last-minute moves by the House, Senate and White House failed to break a bitter budget standoff over President Barack Obama's health care law.

Will the shutdown impact global markets, including India?

Well, analysts are of the view that emerging markets including India are likely to remain volatile ahead of debt ceiling negotiations and FOMC meet due later in the month of October. However, it (shutdown) is only a near-term worry for global markets and should end up benefiting emerging markets like India.

"The shutdown was on the cards. Hopefully, there will not be an overhang on the market for too long, but in this interim period, it could be one more negative," said Jyotivardhan Jaipuria, HoR, BofA-ML in an interview with ET Now.

"Therefore, for most investors it is a near-term worry, but it is not going to be prolonged because ultimately they have to find a solution. No politician can afford to have a prolonged shutdown of the US," he added. Jaipuria expects markets to correct around 3 per cent in next 15-20 days after the event, markets will slowly recover.

The last two shutdowns, which took place weeks apart in late 1995 and early 1996, cost taxpayers $1.4 billion, according to estimates from the Office of Management and Budget, according to a report.

Global markets may remain nervous on this event along with EM's including Indian market, said Siddharth Sedani, Assistant Vice President at Microsec Capital Ltd.

"Indian markets would be volatile during this week on US Govt. shutdown as well as some domestic positives like Q1FY14 CAD came in line with expectation and improved PMI (still in contraction mode) boost the Indian markets to stay afloat and not drift down significantly," he added.